The arrest by Israel’s internal security service, the Shin Bet, of an Israeli Jew accused of killing at least four Palestinians has thrown a rare light on the secret police, including attempts by one of its agents to enlist the accused to assassinate a Palestinian spiritual leader.

Chaim Pearlman, who was arrested a fortnight ago, has been charged with murdering four Palestinians in Jerusalem and injuring at least seven others in a series of knife attacks that began more than a decade ago. Police are still investigating whether he was involved in additional attacks.

Although Pearlman was denied access to a lawyer until last Friday, far-right groups have rapidly come to his aid, waging what the Shin Bet officials have described as “psychological warfare” by revealing damaging details about the case.

Pearlman has released tape recordings he secretly made of recent conversations with an undercover Shin Bet agent who tried to get Pearlman to incriminate himself.

The agent, who befriended Pearlman and was known as “Dada”, can be heard exhorting him both to go to an “Arab village” to “turn it into a fireworks display” and to execute Sheikh Raed Salah, a leader of the Islamic Movement and a recent participant in the aid flotilla to Gaza that was attacked by Israel.

In another blow to the Shin Bet, Pearlman’s supporters have released a video secretly filmed of the head of the Shin Bet’s Jewish division, which arrested Pearlman, both naming him and identifying where he lives.

Although he is in charge of handling “Jewish terror” cases for the Shin Bet, the video states that he lives in Kfar Adumim, a West Bank settlement. It is a criminal offence to identify any employee of the Shin Bet.

Pearlman’s allies, who posted the video on overseas websites so they could not be removed, appear to hope that the Shin Bet will be intimidated by their move. Identification of such a senior figure will prompt fears that he may be in danger either of revenge attacks or future prosecution in an international tribunal.

The Shin Bet have also been cornered into admitting that they recruited Pearlman as an agent in 2000, in the midst of his alleged stabbing spree, despite the fact that he was a known member of Kach, an outlawed group calling for the expulsion of Palestinians from “Greater Israel”. He later chose to leave the Shin Bet.

Abir Baker, a lawyer with Adalah, a legal centre that handles Palestinian security cases, said: “The Shin Bet is facing an internal crisis over this arrest and the settlers are trying to exploit that with their campaign.

“Many members of the Shin Bet are settlers themselves and think of these extremists as their colleagues, not as the enemy. The line between the Shin Bet and these extremist organisations is very blurred.”

The Shin Bet’s modus operandi in Pearlman’s case has been exposed in part because, unusually, the judge supervising the investigation partially revoked a gag order immediately after the arrest.

Pearlman, who apparently suspected he was being tracked by the Shin Bet, sent the recordings of his conversations with Dada to local media to be broadcast in the event of his detention.

Unlike in the case of Palestinian attacks on Israelis, attacks by Jews on Palestinians are rarely solved, leading to criticisms that the Shin Bet is not serious about tackling the problem of “Jewish terror”.

Amir Oren, a security analyst for the liberal Haaretz newspaper, accused the Shin Bet of having “chains on its feet and weights around its neck” when it investigated such cases.

Yaakov Teitel, a settler who was arrested by the Shin Bet last year, is accused of his first murder of a Palestinian 14 years ago. Some observers have suggested he was only arrested after he started attacking leftwing Jews, including placing a bomb at the home of a prominent academic in 2008.

Baker said Jewish terrorists often found it easy to evade the Shin Bet because they had learnt about the organisation’s investigation techniques while working as agents.

Although Pearlman, aged 30, was living in the Israeli town of Yavne, north of Ashdod, at the time of his arrest, he was raised on a settlement and spent many years living in Kfar Tapuach, which is closely identified with the Kach movement.

Despite being illegal, Kach operates relatively openly in the settlements and Pearlman’s connections to the group may explain the well-organised campaign quickly mounted in his defence.

Itamar Ben Gvir, a parliamentary aide to Michael Ben Ari, an MP who has maintained his ties to Kach, is reported to be heading the media campaign against the Shin Bet. Pearlman is also being helped by Honenu, a legal organisation that defends Jews accused of attacking Palestinians.

Anonymous Shin Bet officials told Channel 2 television that the psychological warfare they were experiencing from the far-right was “a completely different game” from previous confrontations.

Nadia Matar, leader of the pro-settler group Women in Green, told the Jerusalem Post this week that the Shin Bet divisional head “has to know that there is a price to stabbing Jewish brothers in the back. … People have to be loyal or bear the consequences.”

In the 20 hours of recordings with Dada, some of which have been broadcast on Israeli television, the undercover agent can be heard repeatedly inciting Pearlman to kill Sheikh Salah.

Dada says: “Why haven’t soldiers killed Raed Salah, may he die? … Someone should take care of him, send him to the next world.”

He then suggests Pearlman shoot at the sheikh’s car or put a bomb under it. “That’s the classic one. Nothing’s left, everything goes everywhere,” he adds.

Dada’s advice is particularly controversial given that at the time Salah had recently stated that Israeli commandos onboard the Mavi Marmara ship had tried to kill him.

Israeli officials too appeared to believe in the immediate aftermath of the attack on the ship that Salah had been killed or seriously injured. Early reports in the Israeli media justified his presumed death on the grounds that he had opened fire on the commandos. Later his wife was called to a hospital to identify a man undergoing surgery, although it turned out not to be the sheikh.

It emerged last week that Pearlman may have been helped by David Sitbon, a settler who is suspected of stealing weapons from Israeli army bases.